How low can the RBA go?

The Reserve Bank of Australia (RBA) could take interest rates into uncharted territory if it lives up to the predictions of economists quizzed by the AAP.

A total of 13 of a panel of 16 economists surmised that the RBA will slash interest rates by a further 50 basis points when it meets on Wednesday (February 4th), a move which would take the average lowest interest rate below the current record of 2.89 per cent.

Explaining the panel’s reasoning, RBC Capital Markets senior economist Su-Lin Ong, commented: “It’s pretty clear from the RBA that they are very reluctant to cut any more, but the reason we think a move is justified is the global downturn has worsened since the last board meeting.”

If the panel is right, the RBA will bring the interest rate to a record low of 2.75 per cent, an announcement which would likely have first-home buyers and variable rate home loan customers jumping for joy.

However, those looking to compare savings accounts may be slightly less enthusiastic about another interest rate cut, as headline savings interest rates would be likely to fall further if the RBA does decide to cut for the sixth consecutive month.

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